Activity Based Risk Evaluation Model of Auditing

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Control testing stage: planning:
Operational planning

ACTIV- ITIES	STAGES
	CA/R	AP	CT	ST	OF
PL	SP	TP	OP	OP	OP
EG	PK	DK	EofO	EofM	CFS
EE	AR1	DR*2	DR*3	AR4	AR5
DM	A/R	AA	CR?	CAB	AO

Planning activities in the In the control testing stage (as well as the next two stages) comprise operational planning as the plans are subject to revision at any time during the course of the audit. In auditing, operational planning is the activity of determining what and how much evidence the auditor requires to be gathered and evaluated, and when, how and by whom it should be gathered and evaluated. In other words, operational planning is the development, and revision, of the audit program for the engagement. For existing audit engagements, the audit program for an account balance is revised if the audit approach has changed from the previous year ^[fn].

In the control testing stage, operational planning refers to the preparation of that part of the audit program dealing with evidence gathering and evaluation activities to be applied during this stage. The extent of these activities depends on the audit approach, determined in the previous the audit planning stage: a systems approach requires extensive control testing activities, while a verification approach requires no control testing activities ^[fn]. For each account balance assertion for which a systems (or part systems) approach is planned, the auditor obtains evidence of:

• the acceptable audit risk and the inherent risk at the account balance assertion level. The revised evaluations are referred to as AR*₃ and IR₃ respectively. The auditor gathers additional information concerning these risks when s/he becomes aware that the values may have changed.
• control risk CR₃ at the account balance assertion level. This is a revised evaluation of CR₂. In this audit stage, the auditor always seeks to gather information that is relevant to a revised valuation of control risk, but only in relation to those account balance assertions for which a systems (or part systems) approach is planned.

If the evidence gathered supports new values for AR*₂, IR₂ or CR₂, then the auditor revises the audit approach previously determined in the audit planning stage. Otherwise, the audit approach remains unchanged.

After the audit program has been documented, the auditor gathers the evidence referred to in the audit program. Refer to the next activity.

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